Wage and salary income, which is key for consumer spending, fell… While lower taxes and one time checks from the government are obviously a net positive for the consumer, they tend to have a short-lived effect on spending growth as they only affect the rate of change in disposable income when they are implemented or shortly thereafter. Of more importance to ongoing spending growth is the rate of growth in wages and salaries and other continuing sources of income flow. –Joshua Shapiro, MFR Inc.

The lion’s share (94.3%) of the increase in income came from one-time increases of $250 per eligible recipient of social security, supplemental security, veterans benefits, and railroad retirement benefits. The $13.1 billion of these transfers boosted May income by about $158 billion (annualized). These transfers are not recurring so incomes will fall by a like amount in June. Spending from this actual $13.1 billion is likely to be spread out over several months or even years if recipients use the proceeds to increase saving or reduce debt. The key fundamental driver of spending — wage and salary income — fell 0.1% after a slightly smaller advance in April. –Nomura Global Economics

Today’s data does not particularly change the view in any way. We know that the consumer remains backed into a corner, and any ‘green shoots’ of improvement will be tempered by the fundamentals at play, including an increasing unemployment rate, and an overall negative wealth effect (primarily coming from loss in home values). As such, we don’t suspect future gains of this magnitude will be sustainable outside of the influence of government stimulus. However, at the end of the day this is a better than expected report regardless of the one-off factors that are giving the data a beauty makeover. –Ian Pollick, TD Securities

Almost all the jump in incomes reflects the impact of the stimulus package, which gave $250 one-time payments to people receiving a variety of social security benefits. By contrast, wage and salary income fell 0.1%. It will continue falling as wage gains slow and payrolls fall. Most of the stimulus money was not immediately spent, so the saving rate jumped to a 16-year high of 6.9%. It has further to go… Not a green shoot, in our book. –Ian Shepherdson, High Frequency Economics

Real consumption has struggled to increase so far despite a torrent of government income support: real PCE has fallen 0.4% annualized over the last three months despite a 11.9% annualized increase in real disposable income. It is important to keep this in mind as we go into the second half of the year, when income support will unwind some. With households smoothing their consumption, a drop in second half real disposable income need not necessarily lead to a drop in spending, though this is naturally something we will watch closely. –Abiel Reinhart, J.P. Morgan

I have argued for months that it would be the consumer who would lead the way out of this mess and that is starting to happen. Consumer spending rose at a moderate rate in May as people bought more durable goods and soft goods. Interestingly, demand for services, which had been holding in, was essentially flat. So far this quarter household spending has been essentially flat compare to the first quarter. That is not as strong as had been hoped given the stimulus bill. Indeed, it appears that so far the stimulus money has gone more to savings than spending. –Naroff Economic Advisors

Reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Wages and salaries were down in May, and have fallen in four out of five months this year. And higher gasoline prices are biting into spending power… Looking forward, we expect consumers to stay cautious. But we do expect spending to creep slowly higher in the second half of the year as the labor market deterioration becomes less severe. –Nigel Gault, IHS Global Insight

As an indication of how weak labor market conditions have become — recall it is not only significant job losses but also declining aggregate hours worked amongst those with jobs — yesterday’s revised GDP data show that during the first quarter, aggregate wage and salary disbursements fell on a year-over-year basis. While this may not seem much of a surprise, this is the first over-the-year decline in wage and salary disbursements since the second quarter of 1958. While the rate of job losses appears to have moderated, employment is nonetheless still declining, as are aggregate hours and aggregate labor earnings. Throw in the significant decline in household net worth over recent quarters and restricted access to credit, and it is no surprise that consumers remain cautious in their spending behavior and continue to add to household savings. –Richard F. Moody, Forward Capital